Paula Pant: You can Afford Anything but not Everything

Welcome to the new retirement podcast. Today we're going to be talking with Paula Pant, the founder of Afford Anything personal finance website and host of the Afford Anything podcast, which has 15 million downloads. Congratulations on that.

Thank you. Thank you.

It's pretty amazing. Paula's core belief is that you can afford anything, but not everything and every decision has a trade off. So we're going to discuss the timing and transition to financial independence and retirement. So with that, Paula, welcome to our show. It's great to have you join us.

Oh, thank you so much. Thank you for inviting me on.

Yeah, I really appreciate your time. Our audience put in Facebook and they had a lot of questions for you. So we'll ask you some questions later on about that are specific to them. But just to get started, I also, in our community was just kind of, I put out a question, how do you know when you're or what made you think as an individual that it was time to retire or make the jump to financial independence? And a couple big themes emerged. So one was time. So folks had a much bigger recognition that, hey, their time is valuable. It's a very scarce resource. They can't get any more of it. They also may have seen a health scare either in their own lives or in a family or friends or something kind of looked up and they're like, hey, I'm 50 or something and I might have fewer. I've seen more yesterdays than tomorrow's. That was one big thing was time. Another big thing was environment. So corporate culture stifling. They were dreading Mondays. They didn't feel like their work was valued and they just felt like they could get more return on their time using it the way they wanted to. So I was just curious what you've heard in your community and doing your podcasts around. How do people know when it's time to get serious about financial independence or make the transition to it?

So among the people in my community, in the afford anything community, there's a wide variety of motivations that people have. The afford anything community spans people in their 20s to early 20s all the way up to people in their 60s and 70s. And so people find financial independence at different stages of their life. For a lot of people who are younger, sometimes it's something as simple as they graduated from college and were disappointed in the first job that they got or they went into a major, that in hindsight, they did it because they thought they could get paid well. But now they're in their first job out of college and they absolutely hate it and they're trying to figure out how they can be a little bit more agile, how they can base their living off of the Internet and do something that's a little bit more flexible and remote and online. But they'd like to get a base build up first. So that's typically, oftentimes the motivation that I see from people in their 20s. When people get to their 30s and 40s, a lot of times it's, they want to spend more time with their children and so they're interested in financial independence so that one or both, both spouses can dedicate more time to family life. And then I've got people in the community who are in their 50s or 60s and they're saying, hey, you know, we really want to travel if. And we're starting to recognize that our whole lives we thought, well, we'll do this in our, we'll work until we're 67, 68 years old, and then we'll travel in our 70s. Now we're starting to realize we want to do this while we still have good health. Travel at the age of 70 is going to be very different than travel at the age of even 65 or 60. And so to the extent that, that they can retire even two years, three years, four years earlier, I mean, that is a significant difference when it comes to the amount of energy that you have if you're, you know, jet setting off to Europe or going on safaris in South Africa.

Right. And I remember for your, for your own story, you kind of took up almost like a sabbatical, right. Mid career. And then I guess decided this was great. I'm going to keep trying to do this. Is that, is that right? I mean, how was your own thinking on this? How did that evolve?

Well, so for. With my own thinking. So first of all, I do want to emphasize that I do not consider myself to be retired. I'm totally into the financial independence piece of it, but not the retirement piece of it. I very much see myself as an entrepreneur, as a business owner, as somebody who works more than full time, and I love doing that. You know, my, my hope is that when I'm 200 years old, I am still healthy enough to continue working every day. But for me, I worked at a newspaper. I was a newspaper reporter from 2005 to 2008, and in 2008 I quit my job in order to go travel. And if you think about how little sense that makes, we're in the middle of the Great Recession. We're truly, we're at the start of the Great Recession. The newspaper industry is in decline. All of these major newspapers are shutting down. The ones that are still open are still on, are on hiring freezes and there's a recession. It's the worst time you could possibly voluntarily quit a job. But I had long held this dream of going off to travel. I didn't want to defer it any longer. I'd already deferred it for several years while I was saving up money to do it. And, and I also had a sense that the future of journalism was going to be freelance and independent and online. And so it seemed to me as though my best career prospects were not going to be competing with thousands of other candidates for one coveted reporter spot at a major newspaper, but rather to start my own independent voice online. And I didn't quite know what that was going to look like, but I did get the sense that if I wanted to pivot and, and I wanted to embrace the direction that the industry was going in, you know, that that was going to require doing this on my own. And so 2008, I quit my job. I went to, I flew to Egypt on a one way ticket. I ended up spending about a year in Southeast Asia and then another year in Australia. And when I came back to the United States in 2010, that was when I really dedicated myself full time to making a go of it as a full time, initially as a full time freelance writer and then later that morphed into lots of, lots of other like online activities that turned into its own company and it's in its own, you know, little, little miniature online empire.

Yeah, no, it's good.

But you know, throughout that I was very conscious of the fact that I had no safety net. I didn't have the stability of a W2 paycheck that was coming in biweekly or monthly. I did not have any type of pension plan or any company sponsored health insurance. I didn't have, I was single. I didn't have a spouse with income that I could rely on. And so I knew that I needed to build my own safety net. I knew that I was going to need to build out some foundation that would allow me to take greater entrepreneurial risks. And so really everything kind of worked in tandem. The more that I reinvested money back into growing my business, the more that that business grew. And so that business growth was, I think, the most foundational and most fundamental piece of growing my net worth and then investing in a variety of different assets, including index funds, including real estate, and again including back into my own business. All of that really dovetailed together to help me build my net worth and build out a safety net that I knew would catch me if I were to fall.

Yeah, that's amazing. It's a great story. And did you initially set out to focus on this idea of financial independence or you were kind of doing it for yourself and then you're like, look at what I'm doing?

Yeah. No, I never thought of it as financial independence. I simply thought of it as building a safety net.

Yeah, that's cool. That's a great story. And it's also very inspirational, I think, for people to realize, hey, it is doable and you can be an example. So a question, I mean, I like your kind of core theme here of you can afford anything, but not everything. I mean, that really did resonate with me. And you have a couple key questions that when I was listening to one of your podcasts, you talk about, and I was wondering if you could kind of share that with our audience and kind of why you asked those key questions.

Sure. Do you mean the questions of like, how do you want to spend your time, your money, your energy, your attention?

Yeah. What I heard, the way I heard you articulate it was, you know, one, what matters to you? And then two, how do you align your daily, weekly, and monthly and yearly decisions to reflect that which matters?

That which matters most? Yeah, exactly. So what was your question about those questions?

Well, how did you distill it down to those questions? And what do you see that eliciting from folks when they really kind of dive into those questions?

Sure. Well, so the notion of afford anything is the notion of opportunity cost, that every yes comes with a trade off. And every dollar that you spend on something, every hour that you spend on something, every modicum of brain space that you devote to something comes at the expense of everything else, all other possible alternatives that that could be dedicated to. And so that I think oftentimes people are unconscious to the trade offs and people can fall into what the author, Cal Newport, refers to the any benefit hypothesis. If there is any benefit, any benefit at all, then people will say yes to something. You know, is. Is there a benefit to clipping coupons? Sure. Yeah, there is some benefit. Is there a benefit to pursuing this, you know, opportunity to be a mystery shopper so that you can make an extra $15? Sure. Yeah, there. There is a benefit to that. And that benefit is 15 bucks, you know, and so oftentimes, if there is any benefit at all, people will say yes without considering what that benefit comes at the cost of. And so those two key questions that you focused on, number one, what matters most? And number two, how do you align your decisions accordingly? Those highlight the fact that given the reality of opportunity costs, the question is not could this be beneficial? But rather, what am I willing to give up in order to do this? Is this the most important thing?

Yeah, I think that makes a lot of sense. I mean, like, in our business, we're trying to stack rank the things we have, lots of things we could work on and, or do as services and provide for our audience, but, like, which ones make the most difference for the most people. And we're kind of continuously juggling that. I was also reading, I was actually listening to this podcast from Invest like the Best with the founder of Asana. He was one of the early Facebook guys, Dustin, forgetting his last name. But anyway, he talked about this pyramid of clarity, which is pretty interesting, that, hey, what's your kind of vision that you want to get done at the top? And then what are the. What's your strategy for achieving that? And then how do you break that down into kind of individual goals across your company and then kind of get those out? You could apply a similar thing, you know, to personal finance, I think, in your own time. But like you're pointing out, probably many people don't think about it that deeply by default. So I want to talk a little bit about, like, as people are, if they're earlier, in thinking about financial independence, do you have a way that people should approach kind of getting oriented to getting on the path to achieving it?

If you're sure. So there are a few things. First of all, I break with conventional wisdom on the topic of financial independence in many ways. So. So I want to outline a few of those. Conventional wisdom says that you should pick a phi number, which is often calculated as 25 times your current annual expenses. I do not believe that. So the reason that I don't believe that is because if you think of your expenses across the graph of your life, if you were to create a graph of your adult life and have your annual expenses for each year of your adult life, those expenses would vary year by year. And so to peg an FI number to the year in which you stumbled across the notion of FI is to peg this goal to what is literally just a random data point. And so rather than tether yourself to an FI number or get caught up in questions such as precisely what are my living costs going to be? And rather than getting caught up in the minutia of it. My recommendation would be instead to use FI as motivation to have really good financial habits, motivation to grow the gap between what you earn and what you spend. And that gap can be grown in two ways. You can either spend less or you can earn more, or some combination of the above. But grow that gap, invest that gap, repeat. And if you do that consistently while also living a life that you enjoy now in the moment, then over time, eventually that gap, invested and compounded, will grow to a point where it gives, you know, it gives you a very, very solid footing. And that footing might end up being enough to cover your living expenses in the future, if you want, if you. If things go right, if the markets do well, if, you know, if timing work, if that combination of skill and timing works out just so, then absolutely that could happen. And if that does happen, it's wonderful. But I would caution people not to get so caught up in trying to hit some FI number that they miss out on their life right now in the process.

Right. Yeah. I see some of that in Mr. Money Mustache and some of the communities that are fans of him where it's like, it's all about total austerity. I'm eating, I manage my food budget, I manage my transportation budget. And it's like. Like it doesn't feel like they really are willing to indulge in any kind of. Or any entertainment that's paid, stuff like that. So you kind of wonder, well, you're also, are you weighing the. The value of your time that you know you're not going to get back if you choose? Like, hey, I'm not going to go travel to Egypt or Southeast Asia this year or for the next 20 years, and then I'm going to wait till I'm financially independent, but then I'm 60 years old. Have you really traded off a huge opportunity for yourself?

Right, right. Exactly. Exactly. And the flip side to austerity is like my friend Joseph Sehei, who is often on the podcast, on the Afford Anything podcast with me, he has a great quote where he says, you can't shrink your way to greatness. You were put on this earth with skills and talents and abilities. And if you spend your entire life trying to cut back, you are fundamentally focused on consumerism. You're focused on consuming less, but you're still focused on consuming rather than creating. So why not use your skills and talents in a way that contributes to society and maximize your impact rather than try to shrink your life to be so small that not only do you yourself miss out but the world misses out on you.

Yeah, that's a great point. So for yourself or for people in your audience, it feels like you've, especially since you're far younger than kind of the traditional retirement age, like our audience, they're thinking about, oh, how do I claim Social Security, Do I use my pension? Like, how do they use those things to create an income floor and then maybe use their investments to create the rest of the income they need, drawdowns and so forth. But it sounds like for you, you've done a lot with real estate and just an eclectic mix of investments. I mean, do you have any recommendations on kind of different vehicles people should look at? Or how, how can, how can they put these things together to kind of get that safety net that you build?

Well, I would say start with the end in mind. So rather than, rather than looking piecemeal at various tactics, you know, real estate is a tactic. Index funds are tactics. Having intellectual property that produces royalties, that's a tactic. You know, all of these are income producing vehicles. But rather than hyper focus on a list of tactics that is absent strategy, I would start first, as you were talking about with the Asana pyramid, start first with goal, ultimate goal, and from that goal then go to strategy, and then after strategy then go to tactics. And so if that ultimate goal for a given person is to have X amount of cash flow or income every month and for that to be consistent, then the strategy, and therefore the tactics that they're going to use are going to be very different from someone else who has a goal of X amount of net worth.

Right? Yeah. No, I think that's a great point. I mean, we're actually having that discussion with our product right now, which is how do we kind of are talking about ourselves in terms of like, all right, we're really trying to help people with strategic planning for their money. So it's not like budgeting or just investment management, but it's like, how do you put the whole thing together and then align everything else behind it? I wouldn't say we're not there yet. This was a, this is a work in progress. But yeah. So as someone approaches kind of financial independence, like, how do you, how do people know that they have enough. You talked before like you don't believe in the 25 times thing, which I get for. So what do you see people doing and say, okay, I can't have enough confidence. I mean, in our audience, we see a lot of people like, well, the one more year syndrome, I should work one more year because I save that much more, my money can work longer and so forth, and they're just not sure. And then they wait. The bias is to wait.

Right. Exactly. Exactly. The question of how do you define enough? Is such a philosophically interesting question. Yes, you know, there is. On one hand, enough is a moving target. And it's not just a moving target because of hedonic adaptation. It's not just a moving target because our discretionary desires change. That's the piece of the story that everybody likes to focus on because that's the piece of the story that we can control. You know, if enough changes for the reason that our lifestyle tastes inflate, well, then it can be very easy to control that with some, you know, some mixture of Internet moralizing and you know, everything that you see in the FI community. But where the definition of enough gets trickier is that our needs change. Our genuine healthcare needs, our activities of daily living, you know, as we age, if we need assistance with those types of activities of daily living, I mean, those are genuine, valid reasons why cost of living changes in ways that are unpredictable. You know, it may be the case that for some people, you, they'll spend more in retirement during their 60s and 70s because they're traveling, they're playing golf, they're splitting their time between their Michigan home and their Florida home. And so during that time maybe that their, their spending is high and they anticipate having lower spending in their 80s and 90s because they anticipate staying at home more. But you know, and maybe they're right, or maybe their healthcare needs change and the out of pocket costs on that are significant during their 80s and 90s, right? Or I mean, any number of things can happen that, that cannot be predicted. And if we look at history, you know, not just at history of, of societies, but at people's personal history, the only consistent lesson that we can find is that it is consistently sur. And so I think that retirement planning begins with the acceptance that we can never truly have a sense of how much is enough. But what we need to do is, number one, protect against the risk of ruin. So protect against worst case scenario downsides. And number two, build a plan that is flexible and agile. And so insofar as protecting against that risk of ruin goes having adequate protection, and I'm using protection in a general term, a lot of people jump to insurance. And insurance certainly is big. You know, adequate homeowners insurance, adequate auto insurance, adequate health coverage, healthcare coverage, long term disability insurance. Certainly insurances are a piece of that. But even outside of just insurance itself. Adequate protection against worst case scenarios in whatever form that may take. For some people, that may take the form of having very, very strong cash reserves that can get them through two years or three years of living expenses before they have to draw down on their portfolio so that they're less exposed to sequence of returns risk. For other people that may be having a portion of their portfolio that is truly an income producing portion, either because it's invested in dividend paying assets, because it's invested in rental producing assets. I mean some form of income, a strong income based component of a portfolio could be another form of protection. For people who do have a pension, that's another form of protection. And so building out the piece of the puzzle, if you know, there's the talk of retirement as a three legged stool with Social Security, your portfolio and pension, those being the three legs of the stool, that's a great framework. But those three legs again focus on tactics, they focus on the how. And so what I'm talking about is more the less the how and more the what. And the what is a foundation of protection, a foundation of downside protection and then on top of that a layer of flexibility.

Right. You know, I really like this way of describing it. I mean we definitely see, you know, I mean our audience are planners today. They tend to be opting in. So they're thinking about this. I think they're more risk averse, they're trying to hedge out those risks. And I do think you have to accept that life is uncertain. You can't hedge against every risk, it's impossible. So you have to kind of learn to live with that uncertainty. But yeah, helping people kind of see what they want to manage against. If it's like I want to have the, you know, I want to have maximum wealth at some point or I want to have a good income floor, or I'm worried about, you know, predeceasing my spouse or something like that. You could work with them to kind of understand those risks. And then I mean we also see this. Every plan is so different. Everyone has very different goals and ways of approaching it and personal circumstances. So the idea of like hey, build, you know, create a sustainable system that you understand that gives you some level of protection but is adaptable. And then live with it, live with the risk and hopefully do something with your time that you really love and enjoy.

Yeah.

Is a great approach. So it makes a lot of sense.

Yeah. Get the one thing I would add in terms of protecting against risk and I don't think this gets talked about enough, especially in traditional retirement circles with people who are in their 50s and 60s. Review your prenups, and if you don't have one, get a postnup. I know a woman who's. Her husband left her when they were in their 70s. He had just turned 70, and he left, and it put her in a very, very bad financial position. So that, you know, the. The assumption that just because you're in your 70s, that means your marriage isn't going to disintegrate is unfortunately not true. And that is a bad time to learn that the hard way. So test those assumptions.

Yeah, we talk a little bit about this, but I think that's something that we can call it more, I think, you know, gray divorce. Yeah, it's a real risk. I mean, it happens. And it can be financially very destructive to one or both spouses.

Exactly.

Interesting.

And there is the assumption. A lot of people think, like, that's never going to happen to me because I am not going to agree to a divorce. So a lot of people think that they have personal agency, and as long as they don't agree to a divorce, that means it's not going to happen to them. The reality is you don't have personal agency. If your spouse leaves you, there's nothing you can do about it. You have no personal agency there. So I hate to be so blunt about it, but if I can spare even one person from making the erroneous assumption that they have agency in whether or not they get abandoned, because let's call it what it is, it's abandonment that does happen. It absolutely happens. And it happens across all ages. And so you need to protect yourself from the risk that that could happen to you when, you know, after you've retired and, you know, you don't have the benefit of being in your 20s or 30s or 40s and starting a second career, you know, if you're in your 70s, that's a much worse time for that.

Yeah, no, it's a great point. Okay, cool. So, you know, one thing that occurred to me as you're. As you're kind of describing people building a more sustainable ecosystem is, you know, what we're seeing with COVID I'm going to diverge here a little bit, but I was talking with one of our team members earlier about just the movement that's happening, especially with young people, where they're like, hey, I live in Brooklyn or I live in San Francisco and I make a lot of money, but it's impossible to buy a house here. And I want more space and would love to see if you're seeing this in your community. What we're talking about is people going to these smaller towns in a material way but still grouping up with a bunch of maybe somewhat like minded folks and creating these smaller communities but in a much more sustainable, lower cost of living areas. Are you seeing that in your community?

I mean that in my community did not start with COVID in the afford anything community that's been going on for a long time. You know, people who have remote work or who have the option of being able to work from home, being able to work remotely even prior to Covid were often going to a low cost of living areas, not typically, not small communities. I'm talking about places like Cincinnati, Indianapolis, Detroit, Louisville, Kentucky. I realize I'm naming a bunch of places in the Midwest, but Phoenix, Las Vegas, San Antonio, places that don't have, they're large enough that they are still cities, they're large enough that they still have airport, big international airports, they have accessibility, they have a lot of the benefits that come from living in a mid sized city, but they, they don't quite have the price tag of a place like San Francisco or New York. So I've seen, I've seen that trend in the afford anything community for you know, the better part of the last seven, eight, nine, nine years. And I think Covid has accelerated that among people who are not part of the personal finance community. The pandemic, I think accelerated it for, for a mainstream audience. But I've seen that happening in the afford anything community since, you know, since forever.

Right. It doesn't, it doesn't feel like it's, it's going to reverse. Even if, you know, we get the, or hopefully when we get the pandemic under control, I think people are seeing. Well, it's a couple things. One, companies, especially tech companies out here, they're like, well, Salesforce was just like, well guess what, it's remote forever. Twitter's like, it's remote forever. You know, you can, you don't have the option. And so I think folks are really like okay, you know, let, let's look across the whole U.S. you know, where's a great kind of work life balance, get some fiber optic cabling and you know, go to town.

Well, well so in terms, so yes, the trend is happening but I, I would push back on the, it doesn't seem like it's going to reverse. I don't see it as a, in such a linear framework because what's happening is that as people have the ability to work from anywhere, those who prioritize cost of living and more space seek out homes in places like Indianapolis. By contrast, those who prioritize, let's say, being around cultural communities, you know, being those who prioritize the types of things that a city like New York can offer that Indianapolis just cannot, like, they now have the ability to move to somewhere like New York or San Francisco. And at least at the moment, rents are significantly lower than they ever have been. You know, if you want to, if you want to move there now, particularly in, like Manhattan or in certain neighborhoods in San Fran, you know, landlords are giving three months free rent, all kinds of concessions. And so I don't see any. I don't see an exodus of people happening. I see a reshuffling. People who've spent the last 10 years in Indianapolis but have secretly always dreamed of living in New York, but, you know, it was never the right time. This is a really good time to go there.

Yeah, that's a good point. I. I mean, I tend to know people that live in, that have been living in Brooklyn and New York or San Francisco and whatnot. So there's people. You're like, oh, well, I'm leaving, I'm going to Austin or whatever. Yeah. So I could totally see it going the other way. And I think that makes sense. And it's probably healthy. It's like, look what happened in Detroit. Right? Detroit kind of tanked. You know, you used to be able to buy like a building in Detroit for like whatever, 20 million bucks or something, like a skyscraper or something. Right. And now it's kind of come back in a big way because it got low cost enough and creative folks or engineers or whoever could kind of move back in and make it work.

Right, Right.

So one question before we kind of get into user questions. Once you've achieved financial independence or some level of it, what do you see? How do you see people approaching finding purpose and staying highly motivated? So you're financially independent, you're clearly highly motivated, doing better and better every year. Right.

So some days. Some days it ebbs and flows.

Yeah. What do you, you know, do you. Is there some kind of method or process that you think people should follow or books that they should touch on to kind of think this through? I mean, I've talked to J.D. roth about this a little bit. You know, he's big on purpose, but love to get your take on it.

Yeah. So if you think of the people who we traditionally regard as rich, Elon Musk, Justin Bieber, anyone who we tradition Beyonce, like, anyone who we regard in the mainstream media as conventionally rich, they are, at least the vast majority of them are financially independent. They are not working in order to buy groceries, pay their utility bills, keep, you know, they're. They're working because they enjoy what they do and they're finding projects that interest them. And that, I think, is the key to, you know, I don't, I don't see a big difference between life before and after financial independence. Financial independence just means that you've got enough money that you can generate from investments to provide a stable income floor. And that does provide a sense of psychological relief. But regardless of whether you have that income floor or not, you still ideally want to be engaged in work that you enjoy. You know, if you're, Whether you're Elon Musk and you're trying to build electric cars and create a colony on Mars, or whether you're Beyonce and you're writing songs. No matter what you're doing, it's work that occupies autonomy, mastery, and purpose. You have a degree of autonomy in the work that you're doing. You have a degree of mastery, meaning that it's aligned with your talents, your natural talents, skills and abilities. And you have some purpose in what you're doing, meaning that in some way or another it is benefiting society. And as long as those three factors are present, then I don't really see a difference between pre or post fi. It's, you know, I. Good work is good work no matter whether, no matter how big your investment portfolio is.

Right. Well, what I see in the FII communities or people that kind of, yeah. Have that confidence and agency to do what they want to do is they tend to do probably better work. I mean, they're definitely more invested in it. Right. So they, they, they can probably are completely aligned with the work they're doing. Yeah. And I like the autonomy, Mastery and purpose framework, so it's great to see that. Okay, cool. Well, I wanted to appreciate all the context on financial independence. We have some questions from our users who are very familiar with you. So definitely you have a lot of fans out there.

Oh, excellent.

They're like, oh, good. So first one is from Jeff C. I'd like to know what Paula recommends for someone who has money set aside to allocate towards real estate, but not the time to manage it themselves.

I'm guessing that what he means is that he doesn't have the time to find it because the management part of it is actually quite easy. It's the finding part that requires a bunch of work. So you don't need to manage your property yourself. You, you can hire a property manager and that property manager's job is to manage it. So if you want to purchase rental real estate, then what you would need is time. Time for the finding piece of it. And the good news is that the finding piece is not something that's ongoing. It's a one time project that you only need to do once. So it could be as simple as you take a, you know, you take a two week vacation and during that two week vacation you like binge learn a whole bunch. During the, let's say the first week, second week, you set yourself up with all of the people on your team. You set your, you know, you, you take what you've learned in that, that binge learned in that first week, set yourself up with a good team and get an agent and a property manager and get the people who are going to be boots on the ground doing that search for you. And if you like just knock it out of the park. During a two week vacation, you'll have the dominoes lined up so that you'll know what city and state you're looking in, you'll know what class of property you're looking for. You know, you'll know what your search parameters are. You will have an agent lined up or you'll have initiated your deal finding campaign. Whether it's driving for dollars or doing a direct mail campaign. Like you'll have all of that set up. You know, you basically you can take a two week vacation from work and like knock it out then, and then you've got the property or at least you've got the system for finding a property built. You know, what you want to do is build that system and then let the system do the work.

Well, so I, as someone who has never purchased, I mean I've bought commercial real estate but through a friend who like does this full time, I kind of co invested in a syndicate that he did. What you're saying sounds awesome, but are you really seeing people that are like, hey, I'm going to go from, I'm thinking about, you know, doing, you know, owning real estate and managing as a landlord to like I'm going to learn about it, I'm actually going to be buying it and owning it within, you know, weeks.

Well typically what happens is people learn about it while they're saving up the down payment. So most of my students, I teach a course on real estate investing. The majority of My students who come in, come in with the goal of buying rental, a rental property within one or two years. And as they're going through the process of setting up a down payment or as they're going through the process of saving a down payment, they want to learn about it. And so once they have the down payment saved, then buying it is instant. Now this particular Jeff is his name.

Yeah, Jeff C. I didn't write his.

Last name for him. Jeff C. Yeah, so. So Jeff's situation is unusual in that he already has the money and, and that we don't see that very often. Typically people are doing the learning as they're saving the money.

Yeah. I mean, for what it's worth, I think that for our audience, so our audience is kind of 50 to today, kind of mass affluent around retirement. They actually tend to have money and they don't have enough income or they're very worried. Well, they're worried about having enough income. And I think that things like commercial real estate could be interesting for them. Since it's hard today in the super low interest rate environment to find fixed income products that generate income that you need. You have a million bucks. If you're paying 1%, you're still, that's 10 grand a year. It's not a lot.

Yeah. So I'm going to push back on Jeff's. I mean, so I suggest the two week vacation binge if for a person who truly does not have any time. But I'm also going to push back on Jeff's assumption that he doesn't have any time. What would happen if he eliminated social media from his life? Just not forever, but just for three months or four months? How much time does he spend on Facebook, Instagram, Twitter? How much time does he spend watching tv? If he were to replace that with learning about real estate and then again building the system that will look for a property for him, then he doesn't have to take a two week vacation. The two week vacation angle is for people who have already cut out social media, they've already cut out tv, but they still don't have the time. You know, they have newborn twins and a 60 hour a week job and so they truly, truly don't have any time. If that, if that's his case and he's juggling these newborn twins, then all right, cool, I get it. For my best friend, she doesn't have twins, she has a one newborn. But. But she's in exactly that position where in her day to day life, in her week to week life, she really doesn't have a whole lot of time. And so if she wants to focus on something, she's a programmer. If she wants to just write code, she needs to let grandma and grandpa take the baby for a week and then check into a hotel so that she's not tempted to clean or do laundry and then just write code. Like, like she needs that complete escape. And so that's what I would suggest to Jeff, if Jeff's situation is that he truly does not have time. Like truly, truly in the way that my best friend doesn't. Yeah, give. Give the baby to grandma and grandpa for a week, check into a hotel and binge it.

I like the tough love coaching approach, which is like, let's challenge your kind of core assumptions here about I don't have enough of this or that. Right. That's cool.

Yeah.

Well, here's a related question from Brian P. He just was like, REITs versus owning the real estate, you know, itself. That's all he wrote. Very sharp. But do you have an opinion on REITs versus, like, owning the actual asset directly?

Yeah, they're entirely different. I mean, that's not even apples and oranges. That's like apples in a river, you know, like, they're just, they're so far apart that comparing them is silly. One is building a system, building a business, building a team, making decisions, having your decision making directly influence the outcome. And the other is just chucking your money at something and hoping it goes well. And not to denigrate that, that's what I do with index funds all the time with index funds, I chuck my money at a total market index fund and I hope that the underlying companies are performing well or in fact, if we want to go outside of index funds. If I'm buying Coca Cola stock, I'm just throwing my money at Coca Cola and I'm hoping that their management does a good enough job of growing Coca Cola that the money that I've invested in their stock does well. But I myself do not have any agency in determining the outcome of the, of Coca Cola as a company. Right. So it's like the difference between buying Coca Cola stock versus buying your own bought like, soda company.

Right. So it sounds like from your perspective, I mean, in the way you're living your life, that you, you know, you're more of a proponent of like, own your own business. If it's, if it's a portfolio of real estate that you do, or if it's building your own digital media empire, at least have that be a decent part of your portfolio, like, for you, I'd be curious. I don't know if you want to share it, but like, what percentage of your net worth is in like your real estate that you own versus, I mean, I don't know. I want to ask about your business, but like other, I guess the more passive, normal stock market know, indexes and stuff like that.

Yeah, I honestly don't know because the valuations change. I would, if I had to make a guess, I would say probably 50. 50. Yeah, 50. 50 index funds versus real estate. But, but, yeah, and, but that, that's not including the value of afford anything, right?

Sure. We had a Melissa Fredette who was a person in choose fi. She was like, hey, I'm 50 years old and I'm achieving financial independence and I own like 11 doors. It's like 60% of my, you know, portfolio, and the rest is in kind of more traditional investments. And we kind of talked through our situation. Was pretty interesting to hear how she had, you know, built these things and kind of acquired her way to this and, and was managing it herself. And she. Then she was like, I'm stopping. I don't want more because it's enough, you know.

Yeah, I think that that's great. I love that, you know, have, have a good sense of how much is enough because there's no reason to take on additional risk that you don't need to take on.

David W. Asks. I would like Paula to comment about Roth conversions to lower RMDs requirement distributions, especially to protect a surviving spouse when the spouse dies from a tax bomb and Medicare surcharges as a single tax filer.

I don't know.

This might be. I don't know if you want to get to this one.

Yeah, I think, I think that's not something that I can answer on the fly. I think that your situation is complicated enough that you should talk to a financial planner who has a fiduciary duty to you.

Yeah, I think that's a, that's a great answer. It. I actually wasn't even trying to trap you, but when I was really reading this, I was like, that's really a lot here. It does get really complicated. I mean, this is stuff that we're starting to look at for our software, but there are all these considerations. I think the takeaway for folks is, yeah, taxation, Medicare surcharges, or the IRMAA means test, you know, Social Security income, other passive income. It all hangs together. And it does. It's not simple. As you age, you know, you are forced to kind of draw down these assets, and so it can create consequences for you. So it's good to be thoughtful about and aware of what's coming.

Well, and I think the other takeaway is that financial media is not a substitute for financial advice. Like financial media is media. It is an unregulated industry. Whereas a financial advisor who is licensed and who has a fiduciary duty to.

You.

A financial advisor is going to be able to guide you on your individual situation financially. Financial media, by its very definition, is going to be speaking to the mass market.

Yep. Right. All right. Another question, Brack B. Please ask Paula about the transition from retirement saving to retirement spending.

So this can put you in a very strange headspace. I experienced this in a small way when I quit my job and I was living off of savings for two years. It really messed with my mind because having been a perpetual saver for so long to flip that switch and to watch my balances only move in one direction, which was down rather than continue to grow, it triggered a lot of anxiety, to be perfectly honest. And so I think that being aware of your financial scripts, there's a great financial psychologist by the name of Dr. Brad Klontz, K L O N T Z, who has published a number of books. We've interviewed him twice on the Afford Anything podcast. He talks a lot about the scripts, the money scripts that you have, the money behaviors that you have. So I think being aware of your psychology when it comes to money and the anxieties and fears that. That. That different money situations trigger, I think that's a big piece of the psychological aspect of being okay with spending after you have spent a lifetime having the opposite mindset.

Yeah, right. I know anxiety is top of mind for many people as we live in Covid. And one thing a doctor friend of mine said is anticipatory anxiety is much worse than the. The actual event. In almost every case, people always worry about what's coming and, and how bad it's going to be, whatever it is, you know, if it's being sick or like, I'm going to retire or whatever it is. And then they get there and they're like, okay, that actually wasn't that bad, or I'm going to have surgery or something like that.

Yeah.

All right. So Tommy V. Says Paula does a fantastic job summarizing the key takeaways from each Afford Anything podcast episode. What practices do you, Paula, recommend for someone trying to improve their own ability to get to the core ideas from what they're consuming? I'M assuming this is, I guess, media, ooh.

Core ideas. I would say it can be very easy to get caught up in the minutia of different topics. So anytime you find yourself doing that, zoom out and try to look at what's being said from that 30,000 foot perspective. To analyze something is to break it apart and to synthesize ideas is to put it back together again. And I think when you've analyzed enough ideas and you've broken them apart, you can synthesize across platforms or across mediums, or across, You know, across speakers and philosophies and verticals. And it's that synthesis of ideas in new and different ways that produces insight. And so I guess my two pieces of advice are, number one, constantly zoom out and ask yourself, you know, at a high level, what are we talking about here? At a high level, what are we, you know, what's the spirit of the discussion? That's the first piece of advice. And then the second piece of advice is to listen and read and take in information broadly. Not just from people who are talking about finance, because that can be very echo chambery, but also from people who are discussing anything ranging from habits and productivity, those adjacent verticals. Habits, productivity, motivation, business, entrepreneurship, those are all adjacent verticals. I'd even go a step beyond that. What are people talking about in the fields of health, of fitness, of fashion, of sports? You know, what's happening there and what are some of the modalities of thinking or the mental models that can apply in an interdisciplinary manner?

Yeah, that's a great answer to probably an unusual question. I know one thing that I've seen is from people that are, I think, good thinkers that think broadly is that they very often take ideas from one kind of context and then they reapply it to other ones and then it allows them to think outside the box. I don't remember the exact story, but I remember, I think it's the founder of FedEx, you know, when he was coming up with the idea for, oh, let's try to, you know, be able to deliver packages overnight, one of the key insights was we need this hub and spoke model. But that hub and spoke model, I don't remember exactly where it came from, but it wasn't like in the logistics business, but he was like, oh, I can really apply this idea here and it'll really make a big difference. So another thing I saw that was interesting was there was some McDonald's franchise owner that was like, hey, you know, we have all these people going through, drive throughs you know what I'm gonna do? And I own 10 stores or 15 stores. I'm gonna make a call center for the drive thru. So when you go up to the drive thru, you're actually calling a call center somewhere else, you know, in another state, they're placing the order and then it shows up when you move forward to the window. I was like, oh, that's kind of an interesting insight. Right? You know, people are doing stuff like that. So anyway, wow.

Interesting. Interesting. Yeah, I heard the. Yeah, I heard that the idea behind Netflix came about when the founder went to a video store. He went to Blockbuster and he had to pay late fees on his videos. He was kind of like, embarrassed about the fact that he had to pay these late fees. And then immediately after leaving the video store, he went to the gym and he thought, oh, this is a much better model. You just pay a flat fee every month and you can come and go as many times as you want for as long. As long as you want. And so it was taking that, that gym membership model and applying it to a video store was the, you know, the inception of Netflix. Back, back at the time when Netflix was still mailing DVDs.

I know we have to give a shout out to Reed Hastings here, right, for. Yeah, hey, let's start, let's start mailing DVDs. And then when the cloud comes, let's put everything on the cloud and make it on demand and pivot, you know, pivot the whole thing and make that work. Another big takeaway that he has is that I love and I share with our team is when he's building his company, he's, he's, he has this whole deck on culture, which is worth. It's like 160 pages that's been kind of shared around. But, you know, he talks about, we're, we're a sports team, but we're not like a kid sports team. We're like a professional sports team. And every player here has to perform and they have to perform at a high level or, you know, you're not going to last. And I think that framing up of talent that way is a great way to approach it. If you're building business, it's like, look, we're going to hold each other high standards, and it's not, you're not going to get a participation award here if you want to build something great. Right?

Exactly.

Okay, last question. Paramartha J. Am wondering if the pandemic has forced Paula to struggle with ethical issues as a landlord. How does she deal with non paying tenant tenants, if any, who have lost their sources of income.

Oh. In fact, the pandemic has made me so happy that I am a landlord and even more enthusiastic about acquiring more properties and encouraging people in my audience to acquire more properties. Because if people like you and I do not acquire properties, if people who don't care about their tenants, you know, sit out the game, because, you know, then, then the people who are actually going to be jackrabbits, like the landlords who are complete jackrabbits to their tenants, are the only ones who will continue to be landlords. So the pandemic has made me even more like, mission driven to make sure that we produce that the good people become landlords. Because if good people are landlords, then then fewer bad people are going to be landlords. And so what I've constantly, constantly told my students, and I've written about this on the blog as well, is when the pandemic started, I texted all my tenants and said, hey, I never, ever, ever want you to drive for Uber with a cough for the sake of paying rent. As your landlord, I want to be very clear that saving lives is more important than paying rent. So if you find yourself in a tough situation, reach out to me and we will figure it out together. But please, never drive for Uber with a cough for the sake of paying rent. And one of my tenants called me and he was like, are you serious? And I was like, I don't want your blood money. And he just laughed and he was like, that's cool, you know, I'm good, I still have my job. But that's really good to know, you know, and so like, what the world needs are landlords who do that. What the world needs are landlords who tell their tenants, don't drive for Uber when you have a cough. Or landlords who tell their tenants, hey, if you hit upon hard times, come reach out to me and let me know and we will figure this out. Like we can work out a deal. For example, you know, when, when there's a tenant turnover you've got to pay for, for a vacancy anyway. So if you're, if your tenant can't pay rent because they're between jobs, why not? And they're a good tenant, you want to keep them, why not just tell them, hey, I'll tell you what, if you renew your lease for another year, then I'll give you two months free because you're going to have to pay that anyway if they move out and there's a one month Vacancy, that's one month's rent right there. Plus, if you're paying a property manager, that property manager is going to charge you another month's rent right there. So, boom, there's your two months. If you get that tenant to renew a lease for a year, then you've just saved two months worth of rent and you've passed those savings on to them. So that's a win. Win. And the problem is. The problem, I think, in real estate is that we have these people who are complete Ebony's or Scrooges, and they give all landlords a bad name. And then you have these highly moral people who have money negativity, and. And they're like, well, I keep hearing on the news that landlords are evil, and I don't want to be evil, and therefore I'm not going to be a landlord. So then you have good people who sit out the game, which means that more Ebenezer Scrooges become landlords. So we got to stop that. You know, that's why it's so important for good people to be landlords.

That's a great answer. That's awesome.

Yeah.

All right, I'll definitely check out your course at some point. Uh, there's someone on our team who's actually. She's doing this right now. She. She left Brooklyn. She's going to a broader area, and she's starting to buy houses, and she has this vision of building a kind of mini real estate empire or a real estate empire. Okay. So this is great. So I. One more question. Just about kind of what's next? Any. I would love, you know, any color that you have on, kind of how you see, you know, your own efforts unfolding over the next four or five years, if you want to share that. Yeah.

So. Well, I've. I've never written a book, so I hope to do that sometime in the next five years. I honestly, I've thought about going back to school for an advanced degree. That's. That's in the. The possibly category. We've talked about releasing more. More courses. So that is. We were. We just had a company like a team meeting today where we talked about whether or not that would happen. This year. We are going to be doing live events starting in 2022. We're not even going to try 2021. We'll wait until the pandemic is firmly over. But 2022, we'd like to start doing live events, workshops, weekend retreats. We are interested in building out, like, a journal and a planner so this thing, you know, kind of a goals casting the next 10 years journal where people can really, can, can sit down and at a high level plan out what their life is going to be like over the next 10 years. Followed by a planner where they, you know, they start big and then they go small. So start big with the journal where you figure out the next 10 years and then go small with the planner where you figure out how that translates to the next week, the next month. So that's another project that's in the works and we have a tool that we're building and this one, this one's going to get released probably sometime in the next couple of weeks or. Let me, I take that back. Maybe in the next two months, ish, three months at the most. So this tool is called your next rental city. And it is for people who are trying to figure out what city or state they want to invest in. So it's for out of state landlords and it's a crowdsourced tool where you get all of this information about different cities. So if you live in San Francisco or Boston or Seattle, but you want to know more about Wichita or Oklahoma City, um, you, you know, this is like a big crowdsource tool where you can learn all about these different cities, you can learn about different neighborhoods and you can really drill down and identify where you want your next real estate investment to be.

Interesting. Well, as you do that one here, I'll, we'll throw, we'll throw some business ideas out there. What, you know, one thought is I've definitely always thought that from a capital formation perspective, like we have these users that have money, they want, they want income. Not all of them want to become landlords. But I could see some of them saying, hey, I would invest if I had trusted people managing the properties. And maybe there's some. And then, and I'm sure some of your audience is like, you know, saving up for their first down payment and kind of get going, you know, And I know that when I've done commercial real estate, you know, I'm part of a syndicate. So someone's piling together 20 people and you know, and then we'll buy like a strip mall for 2 million bucks or something like that, and then they'll run it and then we'll get the dividends. So it's this kind of in between thing, but it works pretty well. Like the investor doesn't have to deal with, they're completely hands off. I mean, they pay a price for that because someone else is Managing the deal. But it has worked. I mean, it is risk intensive. It's not necessary for everybody.

But the thing is, even when you have people who are, who are very honest, you know, even when every, everybody and everything is above board, trust isn't just are they going to screw me over? Trust is also how good is their judgment, their judgment as a business leader, how good is their judgment in terms of management and operations? Even in an ideal case, in the best case scenario, where everybody is honest and ethical and above board and nobody does anything shady, even in that best case scenario, there are still going to be differences in judgment when it comes to the management and operations of an asset. And so I'm not a huge fan of, you know, I'm a big fan of, you can delegate the work, but you cannot delegate the thinking. And so anytime that you see this with turnkey companies that pretend to be hands off, but the reality is they're not. Because if you're actually doing your due diligence and you're actually involved in that high level decision making, then you know that's not for you. So they're kind of selling the dream. They're trying to sell like it's easy money. And I'm a big fan of, I'm, I'm opposed to that. I think, you know, if you want to be a, if you want to own a business, which is what owning a piece of real estate is, then own a business.

Right. Yeah. I had Chris Takarski. He's, he's someone I know pretty well and invested with, but he was on our podcast and he's a commercial real estate expert. You know, he does this for his, for a living. He invests, you know, billions of dollars and he's looked at a lot of these crowdfunding sites and you know, not, not real estate sites. And many of them haven't worked. Some of them flamed out. And his takeaway is that, okay, they know how to raise money, but they don't know how to evaluate and buy real estate and they don't manage it. And it's like they, it's all tech guys and, or people or women and. And that's where they fall over.

Yep, exactly.

That's why it's so hard.

Exactly. Yeah. You know, those are two different skill sets. Raising money and running a company are different skill sets. And the same thing with like anyone like a turnkey company that purports that they'll do it for you. They're, you know, being good at marketing is not the same thing. As being good at running real estate.

Yep. All right. Well, good. Thanks, Paula, for being on our show. Thanks, Dada Roberson, for being our sound engineer. Anyone who's been listening, thank you for your time. Hopefully you found this useful. Our goal at New Retirement is to help anyone plan and manage their retirement or, you know, financial independence journey so they can make the most of their money and time. And if you've made it this far, definitely check out Paula's site, Afford Anything, or her podcast or our Facebook group. And any reviews are welcome. We read them and try to do better every time. And that's it. So, everyone, thanks for your time. Appreciate it. And Paula, appreciate your time being on here.

Absolutely. Thank you.